The Coronavirus pandemic has caused the most prominent economic uncertainty in decades, forcing companies of all sizes to foster a new approach to managing the complexity. Never has a robust financial plan ever been so crucial, as the old ways of planning and forecasting have turned outdated and irrelevant. In response to Covid-19 crisis, CFOs and FP&A leaders should quickly shift to advanced scenario techniques, with better analytics models that help quantify the effects of what-if hypotheses involving all business metrics such as cash flow, sales, revenue, inventory.
Six months after WHO declared the deadly coronavirus outbreak a pandemic, more than 35 million people have been infected, approximately half of them are from the United States, India and Brazil. Industries such as hospitality, retail, air and travel, restaurants and bars have been hardest hit. Even if the vaccine can be globally distributed, the long-term economic impact of the pandemic will still ripple for years.
Beside its impact on public health, Covid-19 directly has splashed the profits of businesses around the world as production is disrupted, supply chains break down, investment declines, and demand plunges. This quickly leads to liquidity risks, funding shortfalls, re-financing challenges, all that makes existing financial plans outdated in this rapidly changing environment.
Chief Financial Officers, alongside executive peers, play a critical role in stabilizing the business and navigating it through the global pandemic. However, lacking historical business context under this extraordinary time has significantly prevented business leaders from predicting the future market and consumer behaviour. Unclear decision-making framework and ambiguous criteria create a lack of confidence in making future business decisions. Undoubtedly, it is essential to carefully re-evaluate the company’s vulnerability now to mitigate risks and plan for different recovery scenarios. A recent global survey reveals how successful organizations rebound in a stronger position after the crisis is to deploy advanced technologies, digital transformation, and tech talents.
While the world economy is slowly settling the “next normal”, lots of things would never be the same as pre-crisis. Traditional ways of corporate performance managing, financial planning, and forecasting practices are out-of-date. To better prepare for FY 2021, the following four-step planning process should be adopted to outmaneuver uncertainty amidst this global pandemic:
A COVID-19 financial-planning team should be formed by cross-functional experts to reassess the company’s business performance using historical and current financial trends, taking into account potential future indicators. For big global organizations, each local team likely has a different way to respond to the crisis. Hence, corporate FP&A teams should develop and disseminate targets informed by local conditions to yield a more realistic outcome.
After gathering a solid fact base, the financial-planning team should model various scenarios of how the coronavirus pandemic might affect the industry: a best case, a worst case, a momentum case, and a most-likely case. Besides, the organization should consider different modelling approaches across driver-based, optimization, statistics, or trigger-based contingency models. In this way, the business leaders can easily visualize impact upon a set of output KPIs such as revenue, EBITDA and margins, share price, price/earnings ratio.
In today’s volatile economy, driver-based plans have a clear advantage over their traditional counterparts. When establishing scenarios and plan ranges, CFOs should identify the new drivers of the financial forecast by listing out what has changed due to the crisis (e.g. government regulations, supply chain disruptions, and changing consumer habit). Furthermore, organizations should conduct frequent review sessions with specific targets, especially when it comes to a crucial shift in focus from profitability to liquidity, inventory monitoring, and short-term expense management.
Predictive Algorithmic Forecasting is an Artificial Intelligence-based estimation, which uses statistical algorithms to predict future outcomes. These algorithms are developed by professional data scientists, using historical data and market trends. As more data flows into the algorithmic model, the Machine Learning-powered model “learns” from previous cycles to give out more precise and accurate forecasting. This procedure is extremely beneficial since it can remove biases, handle events and anomalies in the data, and improve itself. As a result, predictive algorithms have a complete application in the real world, in almost every industry, including finance, healthcare, transportation and consumer goods.
Forecasty.AI enables buyers & sellers of commodity products and similar B2B markets to generate more accurate forecasts on their own to improve profits. In this way, we help our customers to make smarter & more profitable business decisions due to sub-optimal forecasting solutions like Excel, which is less reliable, less efficient and lacks simulation. We create highly accurate predictions by applying advanced AI/ML on established and new data sources via a simple drag and drop solution. Our solution automates forecasting tasks, ensures explainability and further allow scenario simulations to improve management decision making.
To help our customers plan their businesses and prepare future crisis management better, we provide scenario planning solutions specifically to tackle challenges from COVID-19.
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